EC A $5 Trillion Property Bust In China Has Huge Implications For Commodities

Please consider Beyond Evergrande, China’s Property Market Faces a $5 Trillion Reckoning.

As China enters what many economists say is the final stage of one of the largest real-estate booms in history, it is confronting a staggering bill: More than $5 trillion in debt that developers took on when times were good, according to economists at Nomura Holdings Inc.

That debt is nearly double what it was at the end of 2016 and is more than the entire economic output of Japan, the world’s third-largest economy, last year.

Asia’s junk-bond markets suffered a wave of selling last week. On Friday, bonds from 24 of the 59 Chinese development companies in an ICE BofA index of Asian corporate dollar bonds were trading at yields of above 20%, levels that indicate high risk of default.

Total sales among China’s 100 largest developers were down by 36% in September from a year earlier, according to data from CRIC, a research unit of property services firm e-House (China) Enterprise Holdings Ltd. It showed that the 10 biggest developers, including China Evergrande, Country Garden Holdings Co. and China Vanke Co. , saw sales down 44% from a year ago.

“There is no return to the previous growth model for China’s real-estate market,” said Houze Song, a research fellow at the Paulson Institute, a Chicago think tank focused on U.S.-China relations. He said China is likely to keep in place a set of limits on corporate borrowing it imposed last year, known as the “three red lines,” which helped trigger the recent distress at some developers, though he said China might ease some other curbs.

Goldman Sachs Group Inc. analysts recently estimated Evergrande had the equivalent of $156 billion of off-balance-sheet debt and contingent liabilities, including mortgage guarantees to help home buyers get loans.

 

What About Commodities? Australia?

Think of the implications a property bust of this magnitude will have on steel, copper, concrete, and Chinese GDP targets.

China had largely been dependent on Australia for raw commodities,

That tidal wave of Chinese Debt is About to Sink Australia’s Economic Recovery.

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Moon Kil Woong 4 days ago Contributor's comment

All housing in evry country is inflated and is set to fall. Be prepared even if the srock market is unaffested expact al least a 10-20 decline in real estate. 

William K. 5 days ago Member's comment

More thorough coverage of that developing situation. Is it a real disaster yet? Or is that part unfolding in slow motion?A slowlyunfolding disaster can be jus as awful, plus it allows seeing just exactly each stage as the disaster develops, nothing mercifully hidden by speed. And I am so seriously hoping to be wrong about the whole thing.